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>CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms. According to the article, the $6.

>CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms. According to the article, the $6.3B is a floor, not a ceiling. And it's not clear whether CoreWeave is actually paying cash or getting the GPUs on credit. If the full amount is getting booked, it's an accounting loophole that's being exploited. If GM sells Hertz a million cars, but says "Hey, we'll buy these back if you can't rent them," can GM book all those cars as actual revenue? What if Hertz only has to pay 10% up front and the rest in 5 years?

ElProlactin 3mo ago
Your GM/Hertz comparison is not applicable here. Under GAAP accounting rules, GM wouldn't be able to book those as sales because it was obligated (or likely) to buy back the asset. Under the rules, this means the transaction gets treated as an operating lease. The cars would stay on GM's balance sheet and the revenue would get recognized over the lease period. The CoreWeave-Nvidia deal is not the same because Nvidia is not buying back the asset (the GPUs). CoreWeave has title to the chips and if they're worth nothing in 5 years, that's a problem for CoreWeave and its lenders. What Nvidia obligated itself to was buying compute capacity, which Nvidia would be able to use for its own workloads. In the GM/Hertz analogy, this is like GM selling Hertz the cars and saying "If you can't find renters for them, we'll rent them from you at market rates, up to $x." Under GAAP accounting rules, GM would book the car sales as revenue, the commitment to rent would be a purchase obligation, and if the rentals ever occurred, GM would incur the costs as an operating expense. There is a question of whether the CoreWeave-Nvidia deal structure is sensible economically, and how much risk is being created. But there's no GAAP accounting question here. At all.
- dannyw 3mo ago
  Great explanation. Maybe another metaphor, it’s like a builder/developer buying land from someone. They own the land, they get the title, it’s theirs. The land owner saying “hey if you can’t sell all the apartments we’ll buy what’s left” doesn’t in any way negate the sale or revenue accounting as per GAAP etc.
- Calamity 3mo ago
  I mean, okay sure, but modify the counterexample they suggested slightly and then it's the same thing. If GM promised to "rent out" (instead of buy back) the cars it sold to Hertz as a backstop (if not enough customers are renting), then the comparison is apt.
  - ElProlactin 3mo ago
    No, it isn't and this is simple GAAP accounting. If GM sold cars to Hertz and then agreed to rent them from Hertz if Hertz was unable to rent them, it would not be consignment. It would be a sale and then purchase commitment, with the cost of the rentals taken as an operating expense. Is the CoreWeave-Nvidia arrangement "good"? Time will tell. But there's no accounting issue here and even non-accountants can educate themselves on the subject because the least effective way to criticize these deals is to make accounting arguments that don't align to actual accounting principles.
    - socialcommenter 3mo ago
      > there's no accounting issue here This seems like a really narrow interpretation of what's going on. Is there any room to doubt/discuss whether GAAP rules could be improved? Or why the deal has been structured this way? Why shouldn't we look through this arrangement? NVIDIA isn't in the business of purchasing outsourced GPU time. They could make better use of unused GPUs by repurchasing them for resale to another customer. If they're not doing that, it already seems likely that they specifically did this to guarantee that the revenue could be recognised. Sure, NVIDIA's risk exposure could (legally) sit on their books without being recognised until it's already too late. That doesn't mean we shouldn't scrutinize them.
      - ElProlactin 3mo ago
        > Is there any room to doubt/discuss whether GAAP rules could be improved? Looking at the structure of the deal and analyzing the risks is perfectly valid. Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter. CoreWeave is buying chips from Nvidia, paying Nvidia full price, and taking title to them. Nvidia has no right to take them back. It instead has a potential obligation, subject to various conditions, to purchase a separate service (compute) from CoreWeave. GAAP rules are updated on a regular basis. If you want different GAAP rules for this type of deal, you at least need enough knowledge about accounting to make a sensible suggestion. > NVIDIA isn't in the business of purchasing outsourced GPU time. This simply isn't true. Google "DGX Cloud". Nvidia has a real business selling cloud-based compute for training foundation models and running heavy AI workloads, and leasing compute from its hyperscaler chip customers instead of competing with them was a strategic decision Nvidia made. So yes, these types of arrangements should be scrutinized. But to do so intelligently requires a basic grasp of accounting rules and the business models.
- vannevar 3mo ago
  Good explanation. But whether it's GAAP compliant or not, the arrangement incentivizes Coreweave to buy chips it doesn't need. You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case---indeed, Nvidia is incentivized by the AI market dynamics to show revenue growth at all costs, because there are plenty of bulls who will wave away any potential future obligations as "ordinary business costs". But are they really ordinary, or is this potential obligation to buy compute actually much greater than Nvidia's actual future needs?
  - ElProlactin 3mo ago
    > ...the arrangement incentivizes Coreweave to buy chips it doesn't need You state this as fact but this is just cynical speculation on your part. The less cynically speculative analysis is that Neoclouds like CoreWeave are rushing to build datacenters because their whole business is based on the premise that AI is a revolutionary technology and there will be massive durable demand for AI compute for the forseeable future. CoreWeave generated over $2 billion in revenue in Q1 and has a nearly $100 billion contracted revenue backlog. This is not an imaginary business with no demand. Nvidia has invested a very modest amount of money in CoreWeave equity. Dividing its revenue by the number of days in a year, Nvidia generates about $2 billion in revenue in ~3 days, and $2 billion represents 0.04% of Nvidia's market capitalization. Are there risks here? Yes. Is the circularity potentially problematic? Yes. But is it also true that some of these arrangements are being used to make hyperbolically apocalyptic claims? Yes. > You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case... You're absolutely correct here, which is a source of risk for Nvidia. That doesn't change the accounting as far as GAAP is concerned though, and you aren't looking at the big picture. The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia. Nvidia will generate about $190 billion in free cash flow this year alone.
    - vannevar 3mo ago
      >> ...the arrangement incentivizes Coreweave to buy chips it doesn't need >You state this as fact but this is just cynical speculation on your part. Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101. >The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia. As noted earlier, the $6.3B is a floor, not a ceiling. >Nvidia will generate about $190 billion in free cash flow this year alone. Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"

ElProlactin 3mo ago

Your GM/Hertz comparison is not applicable here. Under GAAP accounting rules, GM wouldn't be able to book those as sales because it was obligated (or likely) to buy back the asset. Under the rules, this means the transaction gets treated as an operating lease. The cars would stay on GM's balance sheet and the revenue would get recognized over the lease period. The CoreWeave-Nvidia deal is not the same because Nvidia is not buying back the asset (the GPUs). CoreWeave has title to the chips and if they're worth nothing in 5 years, that's a problem for CoreWeave and its lenders. What Nvidia obligated itself to was buying compute capacity, which Nvidia would be able to use for its own workloads. In the GM/Hertz analogy, this is like GM selling Hertz the cars and saying "If you can't find renters for them, we'll rent them from you at market rates, up to $x." Under GAAP accounting rules, GM would book the car sales as revenue, the commitment to rent would be a purchase obligation, and if the rentals ever occurred, GM would incur the costs as an operating expense. There is a question of whether the CoreWeave-Nvidia deal structure is sensible economically, and how much risk is being created. But there's no GAAP accounting question here. At all.

dannyw 3mo ago
Great explanation. Maybe another metaphor, it’s like a builder/developer buying land from someone. They own the land, they get the title, it’s theirs. The land owner saying “hey if you can’t sell all the apartments we’ll buy what’s left” doesn’t in any way negate the sale or revenue accounting as per GAAP etc.
Calamity 3mo ago
I mean, okay sure, but modify the counterexample they suggested slightly and then it's the same thing. If GM promised to "rent out" (instead of buy back) the cars it sold to Hertz as a backstop (if not enough customers are renting), then the comparison is apt.
- ElProlactin 3mo ago
  No, it isn't and this is simple GAAP accounting. If GM sold cars to Hertz and then agreed to rent them from Hertz if Hertz was unable to rent them, it would not be consignment. It would be a sale and then purchase commitment, with the cost of the rentals taken as an operating expense. Is the CoreWeave-Nvidia arrangement "good"? Time will tell. But there's no accounting issue here and even non-accountants can educate themselves on the subject because the least effective way to criticize these deals is to make accounting arguments that don't align to actual accounting principles.
  - socialcommenter 3mo ago
    > there's no accounting issue here This seems like a really narrow interpretation of what's going on. Is there any room to doubt/discuss whether GAAP rules could be improved? Or why the deal has been structured this way? Why shouldn't we look through this arrangement? NVIDIA isn't in the business of purchasing outsourced GPU time. They could make better use of unused GPUs by repurchasing them for resale to another customer. If they're not doing that, it already seems likely that they specifically did this to guarantee that the revenue could be recognised. Sure, NVIDIA's risk exposure could (legally) sit on their books without being recognised until it's already too late. That doesn't mean we shouldn't scrutinize them.
    - ElProlactin 3mo ago
      > Is there any room to doubt/discuss whether GAAP rules could be improved? Looking at the structure of the deal and analyzing the risks is perfectly valid. Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter. CoreWeave is buying chips from Nvidia, paying Nvidia full price, and taking title to them. Nvidia has no right to take them back. It instead has a potential obligation, subject to various conditions, to purchase a separate service (compute) from CoreWeave. GAAP rules are updated on a regular basis. If you want different GAAP rules for this type of deal, you at least need enough knowledge about accounting to make a sensible suggestion. > NVIDIA isn't in the business of purchasing outsourced GPU time. This simply isn't true. Google "DGX Cloud". Nvidia has a real business selling cloud-based compute for training foundation models and running heavy AI workloads, and leasing compute from its hyperscaler chip customers instead of competing with them was a strategic decision Nvidia made. So yes, these types of arrangements should be scrutinized. But to do so intelligently requires a basic grasp of accounting rules and the business models.
vannevar 3mo ago
Good explanation. But whether it's GAAP compliant or not, the arrangement incentivizes Coreweave to buy chips it doesn't need. You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case---indeed, Nvidia is incentivized by the AI market dynamics to show revenue growth at all costs, because there are plenty of bulls who will wave away any potential future obligations as "ordinary business costs". But are they really ordinary, or is this potential obligation to buy compute actually much greater than Nvidia's actual future needs?
- ElProlactin 3mo ago
  > ...the arrangement incentivizes Coreweave to buy chips it doesn't need You state this as fact but this is just cynical speculation on your part. The less cynically speculative analysis is that Neoclouds like CoreWeave are rushing to build datacenters because their whole business is based on the premise that AI is a revolutionary technology and there will be massive durable demand for AI compute for the forseeable future. CoreWeave generated over $2 billion in revenue in Q1 and has a nearly $100 billion contracted revenue backlog. This is not an imaginary business with no demand. Nvidia has invested a very modest amount of money in CoreWeave equity. Dividing its revenue by the number of days in a year, Nvidia generates about $2 billion in revenue in ~3 days, and $2 billion represents 0.04% of Nvidia's market capitalization. Are there risks here? Yes. Is the circularity potentially problematic? Yes. But is it also true that some of these arrangements are being used to make hyperbolically apocalyptic claims? Yes. > You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case... You're absolutely correct here, which is a source of risk for Nvidia. That doesn't change the accounting as far as GAAP is concerned though, and you aren't looking at the big picture. The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia. Nvidia will generate about $190 billion in free cash flow this year alone.
  - vannevar 3mo ago
    >> ...the arrangement incentivizes Coreweave to buy chips it doesn't need >You state this as fact but this is just cynical speculation on your part. Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101. >The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia. As noted earlier, the $6.3B is a floor, not a ceiling. >Nvidia will generate about $190 billion in free cash flow this year alone. Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"